PIA Says Any Private Sector Involvement in NFIP Needs Balance

Federal Emergency Management Agency (FEMA) Administrator Craig Fugate told the U.S. Senate Banking, Housing and Urban Affairs Committee that he would like the private insurance...

June 14, 2011

Federal Emergency Management Agency (FEMA) Administrator Craig Fugate told the U.S. Senate Banking, Housing and Urban Affairs Committee that he would like the private insurance industry to participate in the National Flood Insurance Program, which now has an $18 billion debt. Fugate said that under the current structure, it is unlikely the program's debt could be reduced and that high volume risks from catastrophes like Hurricane Katrina would be better shared with the private sector. The FEMA chief, whose agency administers the NFIP, said he envisioned the federal share of the plan being continued, particularly for low-income households, while making the system "more actuarially based." Fugate added, "I'm not opposed to the private sector buying the least risky policies," Fugate said.

Private sector involvement in the flood insurance program could have advantages, if done properly - but privatizing only the good risks while having the government retain the less favorable risks is not a blueprint for a successful program.

"Any government program that is structured like the NFIP must balance the participation of the private sector and the public sector," said Mike Becker, director of government affairs for PIA National. "Allowing the private sector to buy the least risky flood insurance policies while having the government retain the high-risk policies threatens that balance, and would have an adverse effect on the financial soundness of the program. Maintaining a proper balance is especially important since current reform proposals do not address the $18 billion in structural debt taken on by the flood program as a direct result of Hurricane Katrina six years ago."